Have you ever stopped to make an investment simulation between savings, Selic Treasury and CDB? In Chat with Specialist, weekly and live program of UOL, economist César Esperandio showed how much R$ 100 would yield if they were invested every month in each of these investments. He further explained the difference between simple interest and compound interest.
See below the comparison made by the economist between investments, and understand the difference that compound interest makes for your money. Watch the full program, which is a subscription-only investment quiz that airs every Thursday at 3pm.
Simple interest x compound interest
Esperandio said that “every serious investment” pays compound interest. “It’s the famous interest on interest rate. But there are many crooks in the market offering investments that yield simple interest rates,” he said, who is also from the Econoweek channel.
He showed a simulation making a single contribution of R$1,000. See how much this value would yield in 40 periods (can be monthly, yearly; just to illustrate), with a rate of 10% per year:
Simple interest: it will always pay off only on the money initially invested. In other words, it will earn R$ 100 per month at a constant rate — each period the income is R$ 100. “The income grows in an arithmetic progression”, he explained. At the end of the 40 periods, the income would be R$5,000.
Compound interest: here the progression is geometric. In the first period, the investment will yield R$100 on the R$1,000; in the second period, the income will be on the R$1,100 (and not on the R$1,000). That is, the income is always based on the value of the previous period, and not on the initial contribution. At the end of the 40 periods, the income would be R$45,259.
“While in simple interest you will continue with the same rate of return on the initial contribution, in compound interest the profitability is on the previously accumulated: the initial contribution plus the profitability of the previous period,” he explained.
Simulation between savings, Selic Treasury and CDB
The economist showed a simulation between three types of investment (savings, Treasury Selic and CDB), considering monthly contributions of R$ 100 over 40 years (480 months), considering the current interest rate, 5.25% per year. It is important to know that savings yield 70% of the Selic, that is, 3.68% per year.
Check out how the profitability is (he considered the Selic at 5.25% in the entire period), in gross values (without discounting taxes, fees or inflation):
- Without investing in anything: BRL 48,000 in 40 years
- Investing in savings: BRL 107,859 in 40 years
- Selic Treasury (pays Selic plus a bonus): R$ 170,761 in 40 years
- Prefixed Treasury (with a return of 10.2% per year): R$591,453
- CDB (prefixed with a return of 13.5% per year): R$ 1.5 million
“Look at this difference. And it is precisely because of the compound interest, which has exponential growth. And any increase in the rate of return makes a lot of difference over time,” he declared.
Esperandio said that getting rich “is not a cakewalk”, but it is possible.
“It requires commitment, patience, determination and accumulation of experience. You don’t need to be an expert to make a beautiful nest egg for your retirement or for some other objective. Investments enhance the growth of your wealth and increase your chances achieve your dreams,” he declared.
Specialist Chat is every Thursday
The Chat with Specialist program is broadcast on Thursdays, from 3:00 pm to 4:00 pm, on UOL’s home page and on the investment page, and is exclusive to subscribers. Review past programs here.
You can send questions to Papo by e-mail [email protected] —they can be answered in the program.
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